Under the Radar

00:00:00 ◼   ► welcome to under the radar a show about

00:00:02 ◼   ► independent iOS app development I'm

00:00:04 ◼   ► Marco Arment and I'm David Smith under

00:00:07 ◼   ► the radar is never longer than 30

00:00:08 ◼   ► minutes so let's get started so today as

00:00:12 ◼   ► the the specter of April 15th rolls

00:00:15 ◼   ► around we thought it'd be a delightful

00:00:17 ◼   ► topic to dive into some accounting and

00:00:20 ◼   ► tax discussion everyone's favorite

00:00:23 ◼   ► topics everybody's favorite topic I mean

00:00:25 ◼   ► you know and if you don't like it you

00:00:27 ◼   ► can just put this on and it'll help you

00:00:28 ◼   ► fall asleep it'll be a nice sleep aid

00:00:30 ◼   ► for you if also you quickly though it's

00:00:32 ◼   ► only thirty minutes yeah so probably

00:00:37 ◼   ► worth anything we do dive into topics

00:00:39 ◼   ► like this it always seems like it's a

00:00:41 ◼   ► good idea to have a brief disclaimer

00:00:42 ◼   ► that neither Marco or I are accountants

00:00:47 ◼   ► tax lawyers anywhere really any kind of

00:00:51 ◼   ► any any kind of any kind of professional

00:00:53 ◼   ► qualified advice what we're talking

00:00:55 ◼   ► about basically but we have some

00:00:58 ◼   ► experience and I think what I'm gonna

00:01:00 ◼   ► hopefully I think makes sense for us to

00:01:01 ◼   ► emphasize isn't so much to give specific

00:01:03 ◼   ► advice about this is these are the four

00:01:06 ◼   ► things that you should do but there's a

00:01:07 ◼   ► few things that I think universally like

00:01:09 ◼   ► our good advice but jmo more is to say

00:01:11 ◼   ► here's the kind of questions you should

00:01:13 ◼   ► be asking when you're setting up your

00:01:15 ◼   ► business when you're looking at your

00:01:16 ◼   ► business and seeing if it's set up

00:01:17 ◼   ► correctly these are the kinds of

00:01:20 ◼   ► questions to ask and then if you don't

00:01:22 ◼   ► have a good answer for them go and find

00:01:24 ◼   ► help either you know research yourself

00:01:26 ◼   ► get professional advice however that

00:01:28 ◼   ► makes sense for you but these are the

00:01:31 ◼   ► kinds of things you should be thinking

00:01:32 ◼   ► about from the accounting and tax side

00:01:34 ◼   ► of setting up a small independent

00:01:36 ◼   ► software business and my number one

00:01:39 ◼   ► piece of advice then I would wanted to

00:01:40 ◼   ► start with is go all the way back I mean

00:01:43 ◼   ► I've I set up my you know my my first

00:01:45 ◼   ► like LLC you probably all most ten years

00:01:48 ◼   ► ago I think it is and the thing that I

00:01:52 ◼   ► did back then that I was very glad that

00:01:54 ◼   ► I did and the advice I give to anyone

00:01:56 ◼   ► starting out now is that it's very

00:01:58 ◼   ► important that you understand what

00:02:01 ◼   ► you're doing and if you can't if you

00:02:03 ◼   ► can't work out what you should be doing

00:02:05 ◼   ► then you need to pay someone to explain

00:02:06 ◼   ► it to you because it's very easy to kind

00:02:10 ◼   ► of

00:02:11 ◼   ► just make a few guesses or you know read

00:02:14 ◼   ► a few like articles online and then just

00:02:15 ◼   ► kind of go for it you know that's like

00:02:17 ◼   ► you kind of under you but it if you do

00:02:20 ◼   ► that take that approach of just kind of

00:02:22 ◼   ► winging it you can be setting yourself

00:02:25 ◼   ► up down the road for some very big

00:02:27 ◼   ► problems both in legal problems

00:02:29 ◼   ► financial problems like there's lots of

00:02:31 ◼   ► things that can come out of this and

00:02:33 ◼   ► what you don't want to ever do you know

00:02:35 ◼   ► like I just recently got my big stack of

00:02:37 ◼   ► paperwork from my accountant so I use an

00:02:40 ◼   ► ad you know I use a qualified CPA to do

00:02:42 ◼   ► my books because it makes it much easier

00:02:44 ◼   ► you know when when she sends that back

00:02:47 ◼   ► to me I go through it and I know enough

00:02:50 ◼   ► about you know all the various taxes all

00:02:52 ◼   ► the various deductions and exemptions

00:02:53 ◼   ► and credits and things that I can go

00:02:57 ◼   ► through it and I'm yeah it makes sense

00:02:58 ◼   ► to me I can read reread it with some

00:03:01 ◼   ► confidence and that has come from I've

00:03:03 ◼   ► sat down and I've read through IRS

00:03:05 ◼   ► publications and documentation and

00:03:07 ◼   ► things that you know if I was just

00:03:08 ◼   ► trusting someone else to always be

00:03:10 ◼   ► giving me good advice I would be setting

00:03:12 ◼   ► myself up you know for potential

00:03:15 ◼   ► problems down the road because at the

00:03:16 ◼   ► end of the day I need to you know sign

00:03:18 ◼   ► my name on the bottom of this document

00:03:19 ◼   ► and you know send it to the government

00:03:21 ◼   ► entity and I'm affirming that everything

00:03:24 ◼   ► in there is correct that I agree with it

00:03:26 ◼   ► that I'm okay with it because what

00:03:29 ◼   ► you'll find in a lot of things in

00:03:30 ◼   ► accounting and taxes is sort of the

00:03:32 ◼   ► interplay between them is in accountants

00:03:35 ◼   ► use terms like conservative versus

00:03:38 ◼   ► aggressive right so you can't there's a

00:03:40 ◼   ► lot of deductions or games you can play

00:03:42 ◼   ► where you know you get into grey areas

00:03:45 ◼   ► and it's like it does this really count

00:03:47 ◼   ► as a business expense or does it not

00:03:49 ◼   ► well it depends on who you ask

00:03:50 ◼   ► and ultimately you know those are

00:03:52 ◼   ► personal decisions that you have to make

00:03:54 ◼   ► but if you don't understand the law or

00:03:56 ◼   ► you don't understand the policies you

00:03:57 ◼   ► can't be making those choices within an

00:03:59 ◼   ► informed way and your accountant might

00:04:01 ◼   ► be making choices that you would

00:04:04 ◼   ► disagree with that could come back to

00:04:05 ◼   ► bite you and so at the the most

00:04:07 ◼   ► important thing I think with accounting

00:04:08 ◼   ► even though it's out of our comfort zone

00:04:10 ◼   ► even though it's not something that I

00:04:11 ◼   ► think most developers you know have a

00:04:14 ◼   ► lot of expertise or talent in it's

00:04:17 ◼   ► important at least at a basic level

00:04:18 ◼   ► understand what you're doing and if you

00:04:20 ◼   ► do you know if your accountant is coming

00:04:22 ◼   ► to you with some very complicated

00:04:23 ◼   ► sophisticated

00:04:24 ◼   ► and you don't understand it it's

00:04:26 ◼   ► probably in my opinion not a great idea

00:04:29 ◼   ► to pursue something like that it's like

00:04:31 ◼   ► if you can't understand it it's probably

00:04:32 ◼   ► not worth doing and like I said if you

00:04:34 ◼   ► can't understand it if you're having

00:04:35 ◼   ► difficulty wrapping these around you

00:04:37 ◼   ► know pay for someone to explain it to

00:04:38 ◼   ► you you know to talk to your accountant

00:04:40 ◼   ► like I've you know in the ER I don't do

00:04:42 ◼   ► it as much now but in the early days

00:04:43 ◼   ► when I had an accountant I would you

00:04:45 ◼   ► know every every year or every quarter

00:04:47 ◼   ► when we would sit down I asked her all

00:04:48 ◼   ► kinds of questions about things you know

00:04:50 ◼   ► what what is this what are we doing over

00:04:51 ◼   ► here like what is this deduction mean or

00:04:53 ◼   ► oh we know you said if I'd if I do this

00:04:56 ◼   ► kind of thing then I can take this other

00:04:58 ◼   ► benefit or like making sure that I

00:05:00 ◼   ► really understand it and I think that is

00:05:02 ◼   ► in general just good advice that getting

00:05:05 ◼   ► good help you know finding some good

00:05:07 ◼   ► accountant in terms of some of the stuff

00:05:10 ◼   ► you might need a lawyer for you know

00:05:11 ◼   ► setting up different business entities

00:05:13 ◼   ► and I mean that's a whole massive topic

00:05:15 ◼   ► that is so specific to your region to

00:05:18 ◼   ► your state like I live in Virginia

00:05:20 ◼   ► Markel you live in New York like I

00:05:22 ◼   ► imagine even with state to state some of

00:05:24 ◼   ► the laws are different so you go and

00:05:26 ◼   ► find somebody who is local who's

00:05:28 ◼   ► knowledgeable and ideally has some

00:05:30 ◼   ► experience working with very small

00:05:31 ◼   ► businesses yeah and and I would say too

00:05:34 ◼   ► like in in the area of like making sure

00:05:37 ◼   ► you understand it and and you know

00:05:38 ◼   ► getting good advice from a professional

00:05:40 ◼   ► I would say a little goes a long way

00:05:42 ◼   ► like you you don't need to spend a lot

00:05:46 ◼   ► of money taking up a lot of someone

00:05:48 ◼   ► else's time to to get a good enough

00:05:51 ◼   ► understanding of this to continue

00:05:53 ◼   ► operating your business or to start

00:05:54 ◼   ► operating your business like you know

00:05:57 ◼   ► I've also have been running LLC's now

00:05:59 ◼   ► for about two about ten years something

00:06:01 ◼   ► like that and you know it's at first it

00:06:04 ◼   ► was very intimidating well I I didn't

00:06:06 ◼   ► know what I was doing it seemed like

00:06:07 ◼   ► such a big deal to quote start your own

00:06:10 ◼   ► business and that sounded that seem like

00:06:12 ◼   ► an impossible thing that only other

00:06:14 ◼   ► people do that that's not the kind of

00:06:15 ◼   ► thing I do I'm just a person I don't

00:06:17 ◼   ► know how to do that other people do that

00:06:19 ◼   ► I guess and it only took you know a

00:06:22 ◼   ► sitting down with a lawyer for like one

00:06:24 ◼   ► hour who I haven't seen in 10 years and

00:06:27 ◼   ► it's like it was like one meeting with

00:06:30 ◼   ► the lawyer be like how do I do this and

00:06:31 ◼   ► then he he he gave me an accountant that

00:06:35 ◼   ► he worked with and now I go to that

00:06:37 ◼   ► account

00:06:38 ◼   ► a few times a year and I've asked a

00:06:41 ◼   ► couple of questions here and there but

00:06:43 ◼   ► for the most part if you set it up in in

00:06:47 ◼   ► certain ways like like in the US I get

00:06:49 ◼   ► for example if you do like a basic pass

00:06:52 ◼   ► through LLC which is probably what most

00:06:54 ◼   ► developers would do or would be advised

00:06:56 ◼   ► to do rather than you know various

00:06:58 ◼   ► corporation forms it's really easy you

00:07:01 ◼   ► don't have to do that much and it's you

00:07:05 ◼   ► basically get to just go back to doing

00:07:07 ◼   ► your business as long as you follow a

00:07:08 ◼   ► few very simple guidelines and we're

00:07:12 ◼   ► gonna go through what some of those are

00:07:13 ◼   ► again you should definitely talk to

00:07:14 ◼   ► somebody who has the authority to tell

00:07:16 ◼   ► you this not us I think we will simply

00:07:18 ◼   ► serve as pointers for like here's the

00:07:20 ◼   ► types of things you should be thinking

00:07:21 ◼   ► about and the types of things that you

00:07:22 ◼   ► should ask your accountant slash lawyer

00:07:24 ◼   ► about but it really is if you make it so

00:07:29 ◼   ► it is really a lot easier than you might

00:07:31 ◼   ► think if you if you've never set up a

00:07:33 ◼   ► business entity or a bank account or

00:07:35 ◼   ► business accounting before it can be

00:07:38 ◼   ► very easy and you you you probably won't

00:07:42 ◼   ► have to be constantly meeting with

00:07:45 ◼   ► lawyers and accountants and burning all

00:07:46 ◼   ► that money to do that it's probably a

00:07:48 ◼   ► lot simpler than you think and think -

00:07:51 ◼   ► it's probably worth saying

00:07:52 ◼   ► and then we say in a way that we also

00:07:54 ◼   ► talk often on the show about structuring

00:07:57 ◼   ► your products or structuring the we know

00:08:00 ◼   ► the apps or the businesses that you

00:08:02 ◼   ► pursue to minimize the amount of inputs

00:08:06 ◼   ► that you have to put into them and the

00:08:07 ◼   ► amount of maintenance they take and that

00:08:08 ◼   ► type of a topic that if you're a small

00:08:11 ◼   ► developer you don't have resources or

00:08:13 ◼   ► not in terms of time is not something

00:08:15 ◼   ► that you have a lot of it in the same

00:08:17 ◼   ► way I think in this sense that it is

00:08:18 ◼   ► important to structure things

00:08:21 ◼   ► proactively at the beginning to take

00:08:23 ◼   ► less maintenance and when you're talking

00:08:25 ◼   ► to say you go to see it a lawyer to help

00:08:27 ◼   ► you set up your business in the first

00:08:29 ◼   ► place it's like being upfront about that

00:08:31 ◼   ► it is probably something that is worth

00:08:33 ◼   ► being explicit and saying you know what

00:08:35 ◼   ► is it because they're gonna ask you all

00:08:36 ◼   ► kinds of crazy questions about well if

00:08:39 ◼   ► you set it up in this particular way you

00:08:41 ◼   ► know if you're a an S corp taxes to C

00:08:44 ◼   ► corporation or ov you know that you get

00:08:46 ◼   ► this benefit because then you can have

00:08:47 ◼   ► this thing and it's like

00:08:48 ◼   ► well one of the if one of the biggest

00:08:50 ◼   ► things that they're optimizing for is

00:08:52 ◼   ► your time they're going to probably you

00:08:54 ◼   ► know steer you in a different way and

00:08:55 ◼   ► you may potentially be giving up on some

00:08:58 ◼   ► you know some theoretical deduction or

00:09:01 ◼   ► some benefit that you may have

00:09:02 ◼   ► theoretically but in Mike you know in

00:09:04 ◼   ► practice I think you're gonna enjoy your

00:09:06 ◼   ► life a lot more with a business that is

00:09:08 ◼   ► designed to optimize for you know the

00:09:12 ◼   ► lowest maintenance possible and so

00:09:13 ◼   ► having something you know that basically

00:09:15 ◼   ► you know my business entities

00:09:17 ◼   ► maintenance is I think I write a check

00:09:19 ◼   ► to the State Corporation Commission

00:09:21 ◼   ► every 450 dollars once a year and like

00:09:25 ◼   ► that is the extent of the paperwork that

00:09:26 ◼   ► I have to do you know there's no board

00:09:28 ◼   ► meetings I have to run or all this kind

00:09:31 ◼   ► of stuff that you can sometimes have to

00:09:32 ◼   ► get into because I chose the approach

00:09:35 ◼   ► that was minimizing the amount of time

00:09:36 ◼   ► and maintenance going forward and so

00:09:38 ◼   ► when you're getting a set up when you're

00:09:40 ◼   ► getting advice be sure that you're

00:09:41 ◼   ► explicit about that if that's important

00:09:43 ◼   ► to you if you want to just go crazy and

00:09:45 ◼   ► you know optimize for every possible

00:09:47 ◼   ► deduction or benefit that you might get

00:09:49 ◼   ► like great that's you know by all means

00:09:51 ◼   ► go crazy but it may mean that you're

00:09:53 ◼   ► doing all this busy work down the road

00:09:55 ◼   ► that isn't core to your business that

00:09:57 ◼   ► isn't isn't actually the thing that you

00:09:59 ◼   ► want to be doing right I think that I

00:10:01 ◼   ► think those kind of strategies of like

00:10:03 ◼   ► taking every possible deduction and

00:10:05 ◼   ► having a more complicated corporate

00:10:07 ◼   ► structure and you know to get certain

00:10:08 ◼   ► rates lower and everything else I think

00:10:10 ◼   ► that makes more sense the bigger of a

00:10:13 ◼   ► company you are because the overhead of

00:10:15 ◼   ► doing that as you as you're a bigger and

00:10:17 ◼   ► bigger company with more and more people

00:10:18 ◼   ► involved the overhead and doing that

00:10:20 ◼   ► becomes you know a smaller percentage of

00:10:22 ◼   ► your total time output that you have and

00:10:23 ◼   ► also I think it matters more if you're

00:10:26 ◼   ► in a really low margin business we're

00:10:28 ◼   ► saving all let's saving every possible

00:10:31 ◼   ► penny in tax liability and stuff can

00:10:33 ◼   ► have a major impact on whether your

00:10:35 ◼   ► business is profitable or not and how

00:10:37 ◼   ► much the profitable but for individuals

00:10:39 ◼   ► with software developers that's almost

00:10:40 ◼   ► never the case both of those are usually

00:10:41 ◼   ► not true usually it's just you or maybe

00:10:44 ◼   ► you and a partner or two it's usually a

00:10:46 ◼   ► very small group of people and also you

00:10:48 ◼   ► usually have a pretty large profit

00:10:51 ◼   ► margin like either you're making it or

00:10:53 ◼   ► you're not and if you're not you know

00:10:55 ◼   ► the extra like 15% from a tax change

00:10:58 ◼   ► might not help you and if you are making

00:11:00 ◼   ► it

00:11:01 ◼   ► you probably have more room to play with

00:11:03 ◼   ► in the in the profit margin so like

00:11:05 ◼   ► optimizing for your time as you said

00:11:08 ◼   ► David like you know optimizing for have

00:11:10 ◼   ► needing as little from you as possible

00:11:11 ◼   ► keeping this as simple from you as

00:11:13 ◼   ► possible so that you can actually spend

00:11:14 ◼   ► your time improving your products and

00:11:16 ◼   ► making more money is usually the better

00:11:18 ◼   ► trade-off for most small developers yeah

00:11:23 ◼   ► and so I think probably the next place

00:11:25 ◼   ► that it works makes sense to dive into

00:11:27 ◼   ► is a little bit of just some high-level

00:11:28 ◼   ► advice things that I know have been very

00:11:31 ◼   ► helpful for me from an accounting

00:11:32 ◼   ► perspective the first one and this is I

00:11:36 ◼   ► think the most universally accepted like

00:11:38 ◼   ► good advice for starting a business is

00:11:40 ◼   ► that your business needs to have

00:11:42 ◼   ► separate accounts from your personal

00:11:44 ◼   ► account yes like if you do nothing else

00:11:47 ◼   ► like that will almost all the problems

00:11:52 ◼   ► in accounting at least that's like

00:11:54 ◼   ► that's like ninety percent of what you

00:11:56 ◼   ► have to do just have separate accounts

00:11:59 ◼   ► yeah and so I think for most for most

00:12:01 ◼   ► come from for most kind of businesses

00:12:02 ◼   ► like house it means you probably need to

00:12:04 ◼   ► enter you need to need to set up a

00:12:05 ◼   ► checking account and a credit card are

00:12:09 ◼   ► probably the two things that you'll kind

00:12:10 ◼   ► of need to have set up I don't even do

00:12:12 ◼   ► that I just do a debit card like I just

00:12:14 ◼   ► like the account the account comes with

00:12:16 ◼   ► a debit card from the bank I just use

00:12:17 ◼   ► that and charge everything to that

00:12:18 ◼   ► because again it's like trying to keep

00:12:21 ◼   ► things as simple as possible

00:12:22 ◼   ► I don't even want to worry about like a

00:12:24 ◼   ► business credit card that I have to you

00:12:26 ◼   ► know set up some kind of new auto pay

00:12:27 ◼   ► thing it's like no just just use the

00:12:29 ◼   ► debit card like again over time if I was

00:12:32 ◼   ► a big company maybe getting the extra of

00:12:35 ◼   ► 1% of benefit from having a credit card

00:12:37 ◼   ► with some kind of reward system might

00:12:39 ◼   ► pay off but at my scale it doesn't make

00:12:41 ◼   ► sense to make things that complicated

00:12:43 ◼   ► perfect yeah that's even that's even

00:12:45 ◼   ► simpler so you just need to create an

00:12:46 ◼   ► account and their main reason why you

00:12:49 ◼   ► want to create that account is because

00:12:51 ◼   ► then your bookkeeping which is like one

00:12:53 ◼   ► of these big I remember when I was

00:12:54 ◼   ► starting out with like this big scary

00:12:55 ◼   ► term for like what does that mean I

00:12:57 ◼   ► might need to need like double entry

00:12:58 ◼   ► accounting and 20 to balance my

00:13:00 ◼   ► checkbook and all these things that I

00:13:01 ◼   ► don't do in my own like personal

00:13:04 ◼   ► finances very much it's like becomes

00:13:06 ◼   ► incredibly straightforward because

00:13:07 ◼   ► essentially all I'm doing each month you

00:13:09 ◼   ► know it's like all of them all of the

00:13:10 ◼   ► income are all of the credits to that

00:13:12 ◼   ► account and all of my expenses are all

00:13:15 ◼   ► from my that account and that is my

00:13:18 ◼   ► books like the statement I get from my

00:13:21 ◼   ► bank each you know each month that is

00:13:24 ◼   ► essentially my books and I take that

00:13:25 ◼   ► data and it goes into QuickBooks Online

00:13:28 ◼   ► is that the service that I use because

00:13:29 ◼   ► that's what my accountant likes but it

00:13:31 ◼   ► will ultimately find its way into

00:13:32 ◼   ► therefore like actually actual

00:13:34 ◼   ► accounting side of things but it makes

00:13:37 ◼   ► everything really straightforward if all

00:13:40 ◼   ► of the money that comes in to the

00:13:41 ◼   ► business is going through that account

00:13:42 ◼   ► and all the money that's coming out you

00:13:44 ◼   ► know all of your business expenses are

00:13:46 ◼   ► coming out of there and if you're not

00:13:48 ◼   ► doing this like you're just asking for

00:13:49 ◼   ► trouble I mean you're asking to be

00:13:50 ◼   ► audited and when you are audited that

00:13:52 ◼   ► all of a sudden everything becomes super

00:13:55 ◼   ► problematic and I'll have a link in the

00:13:57 ◼   ► show notes to there's a great episode of

00:13:59 ◼   ► the free agents podcast which is another

00:14:01 ◼   ► show here on real AFM talking about sort

00:14:03 ◼   ► of starting up new businesses and they

00:14:04 ◼   ► were had an interview with Andrew

00:14:06 ◼   ► Carroll who's a CPA and he this was his

00:14:09 ◼   ► like number one advice was you

00:14:10 ◼   ► absolutely have to have separate

00:14:12 ◼   ► accounts and he says the I remember him

00:14:13 ◼   ► saying that the biggest benefit of it is

00:14:16 ◼   ► it changes the dynamic if you're ever

00:14:18 ◼   ► audited I mean and hopefully you're

00:14:19 ◼   ► never audited but it's like suddenly all

00:14:21 ◼   ► of your if you're running any amount of

00:14:24 ◼   ► business stuff through your personal

00:14:26 ◼   ► accounts suddenly you now you have to

00:14:28 ◼   ► justify every single one of those

00:14:29 ◼   ► expenses that make to prove that they're

00:14:31 ◼   ► not personal

00:14:32 ◼   ► because they're intermixed with all your

00:14:33 ◼   ► personal things whereas if your accounts

00:14:35 ◼   ► are super clean and it's just all these

00:14:37 ◼   ► very basic obvious things then it's sort

00:14:40 ◼   ► of it changes it and in the IRS or the

00:14:42 ◼   ► you know what whoever's auditing you

00:14:43 ◼   ► they're they then sort of in a different

00:14:45 ◼   ► way need to prove that that's a personal

00:14:47 ◼   ► expense like it changes that burden of

00:14:49 ◼   ► proof a little bit in a good way like

00:14:50 ◼   ► it's in a very both makes your life

00:14:52 ◼   ► easier it makes you better in that

00:14:54 ◼   ► regard and so number one thing if you're

00:14:57 ◼   ► starting a business it needs to have its

00:14:59 ◼   ► own business account and it's very

00:15:01 ◼   ► straightforward and lightweight

00:15:02 ◼   ► typically I mean I ever been a long time

00:15:04 ◼   ► since I set up my business account but I

00:15:06 ◼   ► basically you know once I went through

00:15:07 ◼   ► the part of forming the business and you

00:15:09 ◼   ► know got my LLC number and my tax

00:15:11 ◼   ► identification number it was basically

00:15:13 ◼   ► just a question of going into the bank

00:15:15 ◼   ► that I chose which for convenience is

00:15:17 ◼   ► the scene of the same bank that I bank

00:15:18 ◼   ► at personally and I just like created a

00:15:21 ◼   ► free basic business account like it's

00:15:23 ◼   ► just a checking account it doesn't do

00:15:24 ◼   ► any no no something fancy about it and

00:15:27 ◼   ► it was just you know filling in a few

00:15:28 ◼   ► forms

00:15:29 ◼   ► and now I have a checkbook with you know

00:15:31 ◼   ► my business's name on it and I can go

00:15:33 ◼   ► from there I've done this so many times

00:15:35 ◼   ► that now whenever I walk into my bank

00:15:37 ◼   ► branch the account manager is like hey

00:15:38 ◼   ► start a new business I don't know if

00:15:42 ◼   ► that's a good thing but yeah right I

00:15:44 ◼   ► mean like and I would also say to like

00:15:46 ◼   ► you know regarding like your accounts

00:15:48 ◼   ► and personal versus business you know

00:15:50 ◼   ► regarding what we said earlier but

00:15:52 ◼   ► keeping things simple one of the one of

00:15:53 ◼   ► my philosophies I've operated on for the

00:15:56 ◼   ► entire time I've been running business

00:15:58 ◼   ► accounts is I if there's any question

00:16:02 ◼   ► about whether something is business or

00:16:04 ◼   ► personal or whether it's mostly business

00:16:07 ◼   ► because like you know the IRS has all

00:16:08 ◼   ► sorts of guidelines and requirements on

00:16:09 ◼   ► like what qualifies for a business

00:16:12 ◼   ► deduction and if it's something that is

00:16:14 ◼   ► for both business and personal use or if

00:16:17 ◼   ► it's mixed like if you went on a

00:16:20 ◼   ► vacation and you happen to talk business

00:16:22 ◼   ► with one person while you were there

00:16:23 ◼   ► like that's a part business trip or

00:16:25 ◼   ► something but my philosophy is always if

00:16:28 ◼   ► there's any ambiguity about whether

00:16:29 ◼   ► something is business or personal just

00:16:31 ◼   ► charge it personally and don't lead octa

00:16:33 ◼   ► from the business and again this is one

00:16:35 ◼   ► of those areas where I could very easily

00:16:37 ◼   ► take more deductions and keep more money

00:16:41 ◼   ► from from being taxed but that would

00:16:45 ◼   ► then increase my my risk at all the time

00:16:48 ◼   ► and it would also increase the

00:16:49 ◼   ► complexity if I ever got out of it and

00:16:51 ◼   ► so the way I do it now where I don't

00:16:54 ◼   ► deduct every possible thing I could

00:16:56 ◼   ► because it's just complicated and things

00:16:58 ◼   ► like you know a home office deduction I

00:17:00 ◼   ► don't need out that either because the

00:17:01 ◼   ► offices of is mixed-use home office

00:17:03 ◼   ► deductions are historically known to be

00:17:05 ◼   ► massive audit red flags because so many

00:17:08 ◼   ► people cheat them you know cheat their

00:17:09 ◼   ► taxes or don't follow all the rules by

00:17:11 ◼   ► using home office deductions same thing

00:17:13 ◼   ► with like you know vehicle deductions

00:17:15 ◼   ► like you know I'm a software developer I

00:17:16 ◼   ► don't need to drive anywhere so like

00:17:18 ◼   ► there's there's all sorts of like things

00:17:20 ◼   ► that that a lot of people try to do if

00:17:21 ◼   ► they trying to max out every deduction

00:17:22 ◼   ► but did that put you at a higher risk

00:17:24 ◼   ► and I don't want to live my life in fear

00:17:27 ◼   ► of an audit I know because of the way I

00:17:30 ◼   ► do things that if I ever get audited I

00:17:33 ◼   ► have nothing to hide I'm not I'm not

00:17:36 ◼   ► scared of anything I'm not ashamed of

00:17:37 ◼   ► anything I'm not there's nothing that I

00:17:39 ◼   ► hope they don't find or that would even

00:17:41 ◼   ► be vague as to whether it should be

00:17:43 ◼   ► or not as far as I'm concerned it's like

00:17:44 ◼   ► this is this is incredibly clean and

00:17:46 ◼   ► like and you know there are just certain

00:17:49 ◼   ► things that I don't bother things like

00:17:50 ◼   ► you know if I go out if I got if I go

00:17:52 ◼   ► out to lunch with somebody to talk

00:17:53 ◼   ► business I don't like that if I take the

00:17:54 ◼   ► train to the city to get a meeting I

00:17:55 ◼   ► don't do that because it's like I'm

00:17:57 ◼   ► gonna save like four bucks because if

00:17:59 ◼   ► you're looking that and at the risk of

00:18:00 ◼   ► what and and the complexity of what and

00:18:02 ◼   ► so by doing it the way I do it the

00:18:05 ◼   ► business account has so few transactions

00:18:08 ◼   ► really like there's there so few actual

00:18:11 ◼   ► expenses charged to my business it's

00:18:13 ◼   ► basically like you know Linode hosting

00:18:16 ◼   ► bills every month and and occasionally

00:18:18 ◼   ► like you know a domain renewal or an ad

00:18:21 ◼   ► I bought somewhere or something like

00:18:22 ◼   ► that but for the most part I have so few

00:18:26 ◼   ► transactions that everything else

00:18:29 ◼   ► becomes easier and cheaper so accounting

00:18:31 ◼   ► is really simple I don't pay a

00:18:33 ◼   ► bookkeeper I don't have bookkeeping

00:18:35 ◼   ► services I to use QuickBooks Online

00:18:37 ◼   ► which is terrible but it doesn't matter

00:18:40 ◼   ► it's what everyone uses and it's what

00:18:41 ◼   ► the accountants know and all I do is my

00:18:45 ◼   ► counter doesn't even need to log into my

00:18:46 ◼   ► account I just I just export the the

00:18:49 ◼   ► reports of the profit and loss statement

00:18:50 ◼   ► and give it to him when yes to file

00:18:52 ◼   ► taxes I go in a few times a year and go

00:18:56 ◼   ► through all the important transactions

00:18:57 ◼   ► that are automatically imported from my

00:18:59 ◼   ► business bank account and just classify

00:19:01 ◼   ► them just all right this is this is you

00:19:02 ◼   ► know and that's all I have to do so I'm

00:19:05 ◼   ► saving tons of money and time and stress

00:19:08 ◼   ► by keeping things this simple that I

00:19:11 ◼   ► think make up for any possible smaller

00:19:14 ◼   ► deductions that I'm missing by doing

00:19:16 ◼   ► this this way yeah and I think too it's

00:19:19 ◼   ► it's I remember when I was first getting

00:19:20 ◼   ► started there was easy it's easy to kind

00:19:22 ◼   ► of have this feeling of that like a

00:19:23 ◼   ► business deduction is like it's like it

00:19:27 ◼   ► makes the it makes things free or

00:19:29 ◼   ► whatever like I remember I had would

00:19:31 ◼   ► have that purse - oh it's like well it's

00:19:32 ◼   ► a business expense and it's like it's

00:19:34 ◼   ► like well sort of

00:19:35 ◼   ► it's you're you save the whatever like

00:19:39 ◼   ► the more whatever your marginal tax rate

00:19:41 ◼   ► is on those dollars and which is you

00:19:44 ◼   ► know so yeah that best you're maybe like

00:19:46 ◼   ► having a lower to lowering your tax bill

00:19:48 ◼   ► by a third or a third of the value and

00:19:50 ◼   ► so you know it's a relatively like

00:19:54 ◼   ► you're saying with like some small

00:19:55 ◼   ► expenses

00:19:56 ◼   ► the ones that tend to be most

00:19:58 ◼   ► questionable like you're a train ticket

00:20:00 ◼   ► right you you you you buy a $10 train

00:20:03 ◼   ► ticket you're saving three dollars if

00:20:05 ◼   ► that's a business expense say I'm like

00:20:06 ◼   ► fair enough that's three dollars in your

00:20:08 ◼   ► pocket like I'm not saying this that's

00:20:09 ◼   ► not valuable but it is not it's not that

00:20:13 ◼   ► the entire trip became free like you're

00:20:15 ◼   ► still paying for the whole trip and so

00:20:18 ◼   ► having that mindset I think it

00:20:20 ◼   ► definitely makes a lot of sense that I'm

00:20:22 ◼   ► also probably it's fair to say that you

00:20:24 ◼   ► anything that you do any deductions that

00:20:26 ◼   ► you do take you then will need to have

00:20:30 ◼   ► the means to justify them later and have

00:20:33 ◼   ► a record of that you know so for things

00:20:35 ◼   ► like Linode bills like that's easy I

00:20:36 ◼   ► have you know a folder in my email that

00:20:39 ◼   ► it just has all that you know all the

00:20:40 ◼   ► Linode bills I've ever gotten so if I

00:20:42 ◼   ► ever need to justify it it's a lot

00:20:44 ◼   ► easier than you know if you are trying

00:20:46 ◼   ► to keep you know pictures or scans of

00:20:49 ◼   ► every receipt for every little thing

00:20:51 ◼   ► that you ever did and that becomes a

00:20:53 ◼   ► much more complicated thing and you know

00:20:55 ◼   ► like this is very much just a personal

00:20:56 ◼   ► choice if you like that kind of thing

00:20:58 ◼   ► and you want to push every little thing

00:21:00 ◼   ► go for it if you want to do something

00:21:01 ◼   ► simpler like that works works too and

00:21:03 ◼   ► it's just of that balance of your time

00:21:05 ◼   ► versus the money probably

00:21:07 ◼   ► yeah because anytime you take all those

00:21:10 ◼   ► deductions and make the end and

00:21:12 ◼   ► basically add more to your system you

00:21:14 ◼   ► need support and costs around that you

00:21:16 ◼   ► need a way to you know save these

00:21:18 ◼   ► receipts and track them you need

00:21:20 ◼   ► possibly more bookkeeping expense you

00:21:22 ◼   ► need possibly down the road more time if

00:21:24 ◼   ► you ever get audited you know like the

00:21:26 ◼   ► the amount that you're gonna have to pay

00:21:27 ◼   ► somebody to go through all this stuff

00:21:28 ◼   ► you might actually wipe out all the

00:21:30 ◼   ► savings you had in the meantime if these

00:21:31 ◼   ► are all small deductions like it you you

00:21:34 ◼   ► have to account for the costs of even

00:21:37 ◼   ► tracking this stuff and taking the risk

00:21:40 ◼   ► on some of these kind of questionable

00:21:41 ◼   ► ones so for me it's just it's very

00:21:42 ◼   ► simple I just keep everything very

00:21:44 ◼   ► simple I don't you know I pay more in

00:21:46 ◼   ► tax and I need to technically but I

00:21:48 ◼   ► consider that trade-off worth it for

00:21:50 ◼   ► what I've been getting out of it anyway

00:21:52 ◼   ► we were sponsored this week by blue

00:21:54 ◼   ► apron the number one recipe delivery

00:21:55 ◼   ► service with the freshest ingredients

00:21:57 ◼   ► for less than ten dollars per meal blue

00:21:59 ◼   ► apron delivers seasonal recipes along

00:22:01 ◼   ► with fresh high-quality ingredients to

00:22:02 ◼   ► make delicious home-cooked meals their

00:22:05 ◼   ► seafood a source sustainably they their

00:22:07 ◼   ► farms like they have all these great

00:22:08 ◼   ► farms they support they source all their

00:22:09 ◼   ► ingredients for

00:22:10 ◼   ► their beef chicken and pork come from

00:22:12 ◼   ► responsibly raised animals and their

00:22:14 ◼   ► produce is sourced from farms to

00:22:15 ◼   ► practice regenerative farming each

00:22:17 ◼   ► Bluebird meal comes with a step-by-step

00:22:18 ◼   ► easy to follow a recipe card and

00:22:20 ◼   ► pre-portioned ingredients that can be

00:22:22 ◼   ► prepared in 40 minutes or less I've used

00:22:24 ◼   ► blue apron myself here at home with my

00:22:26 ◼   ► wife for G's a year and a half or

00:22:28 ◼   ► something like that now even before they

00:22:30 ◼   ► were a sponsor of any of our shows and

00:22:31 ◼   ► we just loved it so much I I love being

00:22:34 ◼   ► forced to cook this often it's just

00:22:36 ◼   ► wonderful because I've learned so much

00:22:38 ◼   ► we've both become such better cooks and

00:22:40 ◼   ► we try all sorts of crazy new things

00:22:42 ◼   ► that we that we either previously didn't

00:22:44 ◼   ► think we'd like or had never even heard

00:22:45 ◼   ► of and we've discovered so many new

00:22:47 ◼   ► foods that we just love so some of them

00:22:49 ◼   ► some of the meals this week include

00:22:51 ◼   ► sweet and sour salmon with bok choy and

00:22:53 ◼   ► ginger fried rice baby broccoli and

00:22:55 ◼   ► fontina paninis with hard-boiled egg and

00:22:57 ◼   ► arugula salad and lemongrass and ginger

00:22:59 ◼   ► turkey burgers with marinated radishes

00:23:01 ◼   ► and roasted sweet potatoes tell you what

00:23:03 ◼   ► marinated radishes before blue apron I

00:23:05 ◼   ► would never have eaten that that would

00:23:07 ◼   ► sound crazy to me they're really good

00:23:08 ◼   ► and super easy to make so now I know how

00:23:10 ◼   ► to use crazy things like radishes anyway

00:23:13 ◼   ► blue apron delivers to most of the

00:23:16 ◼   ► continental US there's no weekly

00:23:17 ◼   ► commitment so you only get deliveries

00:23:19 ◼   ► when you want them you can always pause

00:23:20 ◼   ► or cancel or suspend service or anytime

00:23:22 ◼   ► if you don't have time that week if

00:23:23 ◼   ► you're gonna be out of town or whatever

00:23:24 ◼   ► else very very simple and they guarantee

00:23:26 ◼   ► that every ingredient arrives ready to

00:23:28 ◼   ► cook or they'll make it right so check

00:23:29 ◼   ► out this week's menu and you will get

00:23:31 ◼   ► three free meals with your purchase this

00:23:33 ◼   ► is free food including free shipping

00:23:35 ◼   ► three free meals by checking out this

00:23:37 ◼   ► week's menu by going to blue apron comm

00:23:39 ◼   ► slash radar you will love how good it

00:23:42 ◼   ► feels and tastes to create incredible

00:23:44 ◼   ► home-cooked meals with blue apron so

00:23:45 ◼   ► don't wait visit blue apron comm slash

00:23:47 ◼   ► radar and thank you very much to blue

00:23:49 ◼   ► apron for supporting this show and all

00:23:51 ◼   ► of real afm blue apron a better way to

00:23:53 ◼   ► cook so the last area that it seems like

00:23:55 ◼   ► probably why no any up our discussion on

00:23:57 ◼   ► is just little bit about the actual I

00:23:59 ◼   ► actually the tax side of these things

00:24:03 ◼   ► you know they're not so fun part where

00:24:04 ◼   ► you write a check to the government

00:24:06 ◼   ► though in some ways I always do kind of

00:24:08 ◼   ► like when I have to write a big check it

00:24:09 ◼   ► means that I had a good year so it it

00:24:13 ◼   ► has a slight upside to it but the thing

00:24:17 ◼   ► that I was trying to think about in

00:24:18 ◼   ► terms of like basic advice for for taxes

00:24:21 ◼   ► and I think the biggest thing that I've

00:24:23 ◼   ► learned is the

00:24:24 ◼   ► Orton's of planning for taxes ahead of

00:24:27 ◼   ► time that it shouldn't be something that

00:24:29 ◼   ► you get to the end of the year and

00:24:31 ◼   ► suddenly you're trying to work out what

00:24:34 ◼   ► your tax bill is going to be that you

00:24:37 ◼   ► know I check in on my sales about once a

00:24:39 ◼   ► week you know I go through and I might

00:24:41 ◼   ► bake crazy spreadsheets we've talked

00:24:42 ◼   ► about before where I'm looking at my

00:24:43 ◼   ► income and kind of getting a sense and

00:24:45 ◼   ► on about a monthly basis I'm kind of

00:24:48 ◼   ► doing base overall kind of how the

00:24:51 ◼   ► business is going and on a quarterly

00:24:52 ◼   ► basis I do like a proper analysis of it

00:24:55 ◼   ► and that's sort of where I'm going and

00:24:58 ◼   ► while I'm doing that I'm one of the

00:24:59 ◼   ► things that I'm always looking for is

00:25:01 ◼   ► you know how is the business going and

00:25:04 ◼   ► how it is going to affect my tax bill

00:25:06 ◼   ► there's a bunch of reasons for this in

00:25:08 ◼   ► terms of like you know you have things

00:25:10 ◼   ► like estimated taxes that you may have

00:25:11 ◼   ► to you know do to make sure because the

00:25:14 ◼   ► government wants to you doesn't doesn't

00:25:15 ◼   ► want all your money it's just at once

00:25:16 ◼   ► they want it throughout the year so

00:25:18 ◼   ► either you're doing payroll withholding

00:25:19 ◼   ► or estimated taxes but most importantly

00:25:23 ◼   ► I think is this the reality of you know

00:25:25 ◼   ► it's easy in some ways when you're when

00:25:27 ◼   ► you're running a business that you you

00:25:28 ◼   ► have this money in your bank account and

00:25:30 ◼   ► in your personal life typically you know

00:25:33 ◼   ► when you have money in your bank account

00:25:34 ◼   ► that's yours and you can spend it and

00:25:36 ◼   ► it's you know it doesn't it isn't

00:25:38 ◼   ► beholden to someone else

00:25:40 ◼   ► because all your taxes were you know

00:25:42 ◼   ► we're taken out of your paycheck before

00:25:43 ◼   ► it got there when your business like

00:25:45 ◼   ► there is often you know not a

00:25:46 ◼   ► substantial amounts of money in my

00:25:48 ◼   ► business checking account that is

00:25:50 ◼   ► essentially you know earmarked to go off

00:25:52 ◼   ► to the IRS one day and exactly when it

00:25:55 ◼   ► goes that there's you know a whole

00:25:57 ◼   ► discussion about the way in which you do

00:25:59 ◼   ► your you pay your taxes but it was just

00:26:02 ◼   ► the importance of thinking about that

00:26:04 ◼   ► ahead of time yeah that you know when

00:26:05 ◼   ► you it's like hey wow this is awesome

00:26:07 ◼   ► I landed a consulting cut you know

00:26:09 ◼   ► client they're gonna pay me $10,000 it's

00:26:12 ◼   ► at that very moment it's important to

00:26:15 ◼   ► keep in the back of your mind they

00:26:16 ◼   ► didn't pay you $10,000 you know maybe

00:26:18 ◼   ► they paid your $7,000 or they had you

00:26:20 ◼   ► sixty-five hundred dollars or whatever

00:26:22 ◼   ► it is and take that mean take that money

00:26:24 ◼   ► out that you are going to have to pay to

00:26:27 ◼   ► the IRS or whatever your local you know

00:26:29 ◼   ► if you're to listen to this outside the

00:26:30 ◼   ► United States

00:26:31 ◼   ► whatever your local you know tax entity

00:26:33 ◼   ► is because I'm sure somebody's going to

00:26:35 ◼   ► be coming and taking a chunk of that

00:26:37 ◼   ► and if you think about it that way from

00:26:39 ◼   ► the beginning it makes it a lot easier

00:26:41 ◼   ► rather than kind of getting to the end

00:26:43 ◼   ► of the year and being like oh man wow

00:26:45 ◼   ► this is awkward like I have this huge

00:26:47 ◼   ► bill that I wasn't expecting or I wasn't

00:26:50 ◼   ► aware of and now I have to now I have to

00:26:52 ◼   ► deal with it that's just gonna be a

00:26:54 ◼   ► recipe for pain exactly and because yeah

00:26:57 ◼   ► I think the same thing like when when a

00:26:58 ◼   ► big chunk of money comes in like like

00:27:00 ◼   ► every month when the Apple deposit comes

00:27:02 ◼   ► in from a store earnings I just I just

00:27:04 ◼   ► think of that as like okay well about

00:27:05 ◼   ► 40% that's not mine like this that

00:27:08 ◼   ► here's all this money I'm temporarily

00:27:09 ◼   ► it's temporarily in my bank account but

00:27:11 ◼   ► this isn't all mine and so one thing I

00:27:13 ◼   ► did I've done for years actually and

00:27:15 ◼   ► I've changed a couple times here and

00:27:17 ◼   ► there but for the most part I've done

00:27:18 ◼   ► this very very successfully is that you

00:27:20 ◼   ► you know in the u.s. you have to pay

00:27:22 ◼   ► estimated quarterly taxes and then or

00:27:24 ◼   ► you and then you get this this big kind

00:27:25 ◼   ► of settlement at the end of the year

00:27:27 ◼   ► every April and everyone's like oh no my

00:27:28 ◼   ► taxes I'm surprised by this but one

00:27:30 ◼   ► thing I I did for a long time with great

00:27:32 ◼   ► success is paying estimated taxes every

00:27:36 ◼   ► month because you can pay more and more

00:27:38 ◼   ► often than then they require you to

00:27:40 ◼   ► there's no downside except that the

00:27:42 ◼   ► money is you know not working for you

00:27:44 ◼   ► earning interest in your account but

00:27:45 ◼   ► interest rates suck these days so you

00:27:47 ◼   ► know you're not losing much so like it

00:27:49 ◼   ► actually make things very simple for me

00:27:50 ◼   ► to basically just estimate you know kind

00:27:52 ◼   ► of a high amount of what I you know like

00:27:54 ◼   ► you know look at looking for tax rate

00:27:55 ◼   ► and you can say all right well you know

00:27:57 ◼   ► I'll give like you know 35 percent of

00:27:59 ◼   ► this or whatever the federal government

00:28:00 ◼   ► and you know way too much of it to New

00:28:02 ◼   ► York State and then and then you know

00:28:05 ◼   ► every time that monthly big deposit from

00:28:07 ◼   ► Apple would come in I do my own taxes

00:28:09 ◼   ► for them alright well you know here's

00:28:10 ◼   ► you know 9 percent whatever in New York

00:28:12 ◼   ► and 35 percent to to the federal

00:28:14 ◼   ► government and then at the end of the

00:28:15 ◼   ► year you know often I would have

00:28:17 ◼   ► overpaid but it was I you know you'd

00:28:20 ◼   ► rather have that error than the error of

00:28:23 ◼   ► oh crap I owe them 50 grand you know or

00:28:24 ◼   ► something crazy like that and you know

00:28:28 ◼   ► again this is one of those areas where

00:28:29 ◼   ► it's not the most tax-efficient way or

00:28:32 ◼   ► money efficient way to operate but it is

00:28:35 ◼   ► really simple and it's not that far off

00:28:38 ◼   ► like you know you're not saving that

00:28:39 ◼   ► much money by not doing things like that

00:28:41 ◼   ► and and it keeps things not only you not

00:28:45 ◼   ► only you know safe firm from the point

00:28:46 ◼   ► of view of like the law and audits and

00:28:48 ◼   ► stuff but it keeps things light

00:28:51 ◼   ► eight for your mind you you know that

00:28:52 ◼   ► you that you're not gonna have a big

00:28:54 ◼   ► surprise down the road you know that

00:28:56 ◼   ► you're covered you know that whatever

00:28:57 ◼   ► money is left over after you've done the

00:28:59 ◼   ► this kind of system you know this is

00:29:00 ◼   ► pretty safely yours and it just makes

00:29:04 ◼   ► things easier to get out of your mind so

00:29:06 ◼   ► you can focus on what you actually want

00:29:08 ◼   ► to do which is definitely not taxes yeah

00:29:11 ◼   ► and I think it it's that the best point

00:29:13 ◼   ► there is the less you can think about

00:29:15 ◼   ► this stuff the better and so having a

00:29:18 ◼   ► system in place that does that is gonna

00:29:20 ◼   ► be best you know in the same way that if

00:29:22 ◼   ► you're coming from a nine-to-five w-2

00:29:24 ◼   ► job or BIR you gonna just get a regular

00:29:26 ◼   ► paycheck every month like all of this

00:29:28 ◼   ► work has been done for you essentially

00:29:29 ◼   ► like this has all been taken care of and

00:29:31 ◼   ► so now that this is your responsibility

00:29:33 ◼   ► it's just it's works out really well in

00:29:35 ◼   ► your favor to just say I'm gonna

00:29:36 ◼   ► simplify this I'm gonna make it easy I'm

00:29:38 ◼   ► gonna make it nice and legal and make

00:29:39 ◼   ► sure I understand everything and if you

00:29:41 ◼   ► do that

00:29:41 ◼   ► you know then this can just be one of

00:29:43 ◼   ► these boxes you've checked and you can

00:29:44 ◼   ► just move on to the actual fun stuff

00:29:46 ◼   ► thanks for listening everybody and we'll

00:29:48 ◼   ► talk to you next week bye